Have you found yourself stuck or at a loss for words when trying to explain your trust account to clients? Especially trying to explain the trust account in terms your clients will understand (i.e., non legalese talk)?
As lawyers, you have lots of resources and CLE’s available to you to help build an understanding of your trust account and the rules and regulations behind managing your trust account. It’s your professional responsibility to have an understanding of trust accounts. What about your clients? Chances are, you’ve lost them the second you mention retainer and trust accounts. Wouldn’t it benefit you to offer a layman’s explanation of a trust account? Wouldn’t it add to the client relationship to build better transparency into the flow of cash? After all, your clients could be paying you a big pile of cash as a retainer, and they would love to know what happens with their cash.
Here are some talking points to help you explain trust accounts to your clients… in terms they can understand:
Definition: A trust account is a special bank account that a lawyer must maintain when the lawyer receives and holds money on behalf of the lawyer’s clients or third parties.
Why Does a Lawyer Have a Trust Account? A lawyer takes on the role of a fiduciary when representing a client. A fiduciary has a high level of responsibility to the person he or she represents. In this role, a lawyer may receive funds that belong to a client or third party. To reduce the risk of the lawyer using that money incorrectly, the lawyer must place it in a trust account. The lawyer does not put this type of money in his or her personal bank account.
Key Features of the Trust Account:
A lawyer may not comingle or mix any personal funds with funds received in the lawyer’s role as a fiduciary on behalf of a client or third party. The trust account prevents comingling of different types of funds.
A lawyer must maintain a separate client ledger for each client who has money in the lawyer’s trust account. At any time, a client can ask to see his or her specific client ledger. The client ledger shows all transactions that flow in and out of the lawyer’s trust account for that specific client. At a minimum, a lawyer must send each client that client’s ledger once per year or as soon as all of that client’s money held in the trust has been distributed.
The NC State Bar provides comprehensive rules and regulations to guide lawyers and ensure that proper records are kept of money in a lawyer’s trust account. The NC State Bar enforces these rules and regulations. A violation could result in disciplinary action by the NC State Bar. On a quarterly basis, the NC State Bar randomly selects 60 lawyers to audit and examines their trust accounts. The random audits encourage all lawyers to comply with these trust account rules and regulations.
Lawyers cannot keep any interest earned on funds held in a general trust account. All interest earned by a trust account is remitted to the NC IOLTA program. IOLTA is a non-profit program that funds the provision of civil legal services for the indigent and sponsors other programs that further the administration of justice.
Next time you find yourself explaining the trust account to your clients, use these talking points. Building transparency by providing a simple explanation of your trust account will benefit your relationship with your clients. Your clients will appreciate your effort to explain, in a clear and simple way, what happens to their payments.
Tom Boyle is Co-Founder of TrustBooks, web-based software for managing trust activity in compliance with state bar requirements. TrustBooks is simple and intuitive, so trust accounting isn’t intimidating. Prior to TrustBooks, Tom owned Boyle CPA, a CPA firm that provided accounting and consulting services to small businesses with a focus on law firms. TrustBooks offers a 30 day free trial at www.trustbooks.com.